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Weekly Update: Another possible tariff revision in Tamil Nadu

Weekly Update: Another possible tariff revision in Tamil Nadu

The Tamil Nadu Electricity Regulatory Commission (TNERC) has published a consultative paper titled ‘Comprehensive Tariff Order on Solar Power’ on 30.07.2013 (click here for the paper). The purpose of this paper is to come up with a common tariff for all solar power projects in the state. The paper recommends an extremely low solar tariff of INR 5.78/kWh (without escalation) for all solar PV projects in Tamil Nadu.

Solar instability seems to be the only constant for solar developments in India

Earlier in the year, TANGEDCO carried out a reverse auction to determine the price of solar power. The bids received were in the range of INR 5.97 to INR 18/KWh. After a lot confusion, TANDGEDCO decided to override the bidding process and fix a ‘workable tariff’ of INR 6.48/kWh (with a 5% annual escalation for 10 years). The rationale behind fixing this tariff is not known and has not been communicated by TANGEDCO. BRIDGE TO INDIA has access to Letter of Intents (LoI) that have been signed by TANGEDCO for a tariff of INR 6.48/kWh.

TNERC is the competent authority to sanction any tariff and not TANGEDCO. Therefore, in our opinion, the recent consultative paper issued by TNERC would now again override the tariff of INR 6.48/kWh (with 5% annual escalation for 10 years) arrived upon by TANGEDCO. This means that the LoIs signed by the distribution company would stand void. In retrospect, it is surprising to see TANGEDCO issuing orders on solar tariff, when this is strictly the responsibility of the state regulator TNERC.

Although there were significant concerns on the bankability of PPAs under the Tamil Nadu Solar Policy, there has been considerable interest shown by investors and developers in this state. Such developments would jeopardize the confidence of investors in the state. Policy instability seems to be the only constant for solar developments in India these days. In case of Gujarat, the PPA signing authority is seeking for a downward revision of tariffs as announced in the state solar policy. Earlier this year, we saw the state of Andhra Pradesh also override the bidding process and announce a fixed tariff of INR 6.49/kWh. Now, the proposed division of Andhra Pradesh and creation of Telangana is also a concern for projects to be set up under the Andhra Pradesh solar policy (read our analysis on the subject here). This kind of instability also makes it very difficult for suppliers and project developers to plan for the Indian market and many international companies and investors have already started giving India a miss, at least for the short to medium term.